Balanced Scorecard

Dr. Vimal K Aggarwal

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
 It is NOT
 A new idea
 An end in itself
 A playing field for internal politics
 An “initiative” of Finance, HR,
Marketing etc.
 Boardroom art
 A make-work exercise
 Its origins
 Nolan-Norton Consultants 1990
 12 client “Organisation of the Future” study group
 Based on premise that financial measures were
insufficient for a modern business
 Principles espoused previously by:-
 Rensis Likert (The Human Organisation, 1960)
 TQM “gurus” (Deming, Crosby, Juran etc.)*
 European Foundation for Quality Management (1985)
 Maisel and McNair parallel models

* Original K&N source was part of a TQ programme

 The Balanced Scorecard
Management
Management translates
translates its
its strategy
strategy into
into
performance
performance measures
measures that
that employees
employees
understand
understand and
and accept.
accept.

Financial Customers

Performance
measures
Internal Learning
business and growth
processes
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
 The Balanced Scorecard
How do we look
to the owners?

In which internal How can we

business processes continually learn,
must we excel? grow, and improve?

How do we look
to customers?
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
 The Balanced Scorecard
Learning improves
business processes.

Improved business
processes improve
customer satisfaction.

Improving customer
satisfaction improves
financial results.
© The McGraw-Hill Companies, Inc., 2003
McGraw-Hill/Irwin
 Benefits of Balance Scorecard
IfIf implemented
implemented well:
well:
–– Forces
Forces management
management to to articulate
articulate aa coherent
coherent
strategy.
strategy.
–– Strategy
Strategy isis communicated
communicated throughout
throughout
organization.
organization.
–– Performance
Performance measures
measures areare more
more likely
likely to
to be
be
consistent
consistent with
with strategy
strategy and
and actionable.
actionable.
–– Portfolio
Portfolio ofof measures
measures reduces
reduces gaming
gaming problems.
problems.
–– Feedback
Feedback looploop makes
makes strategy
strategy dynamic.
dynamic.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 Some Possible Problems

Cultural/behavioral
Cultural/behavioral
–– Program
Program fatigue.
fatigue.
–– Culture
Culture shock/resistance.
shock/resistance.
–– Every
Every existing
existing performance
performance measure
measure
has
has aa champion.
champion.
–– Gaming
Gaming still
still possible.
possible.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 Delivery Performance Measures
Order Production Goods
Received Started Shipped

Process Time + Inspection Time

Wait Time + Move Time + Queue Time

Throughput Time

Delivery Cycle Time

Process time is the only value-added time.

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 Delivery Performance Measures
Order Production Goods
Received Started Shipped

Process Time + Inspection Time

Wait Time + Move Time + Queue Time

Throughput Time

Delivery Cycle Time

Manufacturing
Value-added time
Cycle =
Efficiency Manufacturing cycle time
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
 Quick Check 
AA TQM
TQM team
team atat Narton
Narton Corp
Corp has
has recorded
recorded the
the following
following
average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.50.5 days
days
Inspection
Inspection 0.40.4 days
days Queue
Queue 9.39.3 days
days
Process
Process 0.2 0.2 days
days
What
What isis the
the throughput
throughput time?
time?
a.
a. 10.4
10.4 days
days
b.
b. 0.2
0.2 days
days
c.
c. 4.1
4.1 days
days
d.
d. 13.4
13.4 days
days

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 Quick Check 
AA TQM
TQM team
team atat Narton
Narton Corp
Corp has
has recorded
recorded the
the following
following
average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5 0.5 days
days
Inspection
Inspection 0.40.4 days
days Queue
Queue 9.3 9.3 days
days
Process
Process 0.2 0.2 days
days
What
What isis the
the throughput
throughput time?
time?
a.
a. 10.4
10.4 days
days
b.
b. 0.2
0.2 days
days
Throughput time = Process + Inspection + Move + Queue
c.
c. 4.1
4.1 days
days = 0.2 days + 0.4 days + 0.5 days + 9.3 days
d.
d. 13.4
13.4 days
days = 10.4 days

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 Quick Check 
AA TQM
TQM team
team atat Narton
Narton Corp
Corp has
has recorded
recorded the
the following
following
average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.50.5 days
days
Inspection
Inspection 0.40.4 days
days Queue
Queue 9.39.3 days
days
Process
Process 0.2 0.2 days
days
What
What isis the
the MCE?
MCE?
a.
a. 50.0%
50.0%
b.
b. 1.9%
1.9%
c.
c. 52.0%
52.0%
d.
d. 5.1%
5.1%

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 Quick Check 
AA TQM
TQM team
team atat Narton
Narton Corp
Corp has
has recorded
recorded the
the following
following
average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days MoveMove 0.50.5 days
days
Inspection
Inspection 0.40.4 days
days Queue
Queue 9.39.3 days
days
Process
Process 0.2 0.2 days
days
What
What isis the
the MCE?
MCE?
a.
a. 50.0%
50.0%
b. 1.9% MCE = Value-added time ÷ Throughput time
b. 1.9%
c. = Process time ÷ Throughput time
c. 52.0%
52.0%
d. 5.1% = 0.2 days ÷ 10.4 days
d. 5.1%
= 1.9%
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003
 Quick Check 
AA TQM
TQM team
team atat Narton
Narton Corp
Corp has
has recorded
recorded the
the following
following
average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days MoveMove 0.5 0.5 days
days
Inspection
Inspection 0.40.4 days
days Queue
Queue 9.3 9.3 days
days
Process
Process 0.2 0.2 days
days
What
What isis the
the delivery
delivery cycle
cycle time?
time?
a.
a. 0.5
0.5 days
days
b.
b. 0.7
0.7 days
days
c.
c. 13.4
13.4 days
days
d.
d. 10.4
10.4 days
days

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 Delivery cycle time = Wait time + Throughput time
Quick Check 
= 3.0 days + 10.4 days
= 13.4 days
AA TQM
TQM team
team atat Narton
Narton Corp
Corp has
has recorded
recorded the
the following
following
average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days MoveMove 0.5 0.5 days
days
Inspection
Inspection 0.40.4 days
days Queue
Queue 9.3 9.3 days
days
Process
Process 0.2 0.2 days
days
What
What isis the
the delivery
delivery cycle
cycle time?
time?
a.
a. 0.5
0.5 days
days
b.
b. 0.7
0.7 days
days
c.
c. 13.4
13.4 days
days
d.
d. 10.4
10.4 days
days

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

 End of Chapter 10

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003